Quantifying the Returns of ESG Investing: An Empirical Analysis with Six ESG Metrics
We quantify the financial performance of environmental, social, and governance (ESG) portfolios in the U.S., Europe, and Japan, based on data from six major ESG rating agencies. We document statistically significant excess returns in ESG portfolios from 2014 to 2020 in the U.S. and Japan. We find that aggregating individual ESG ratings improves portfolio performance. In addition, we find that a portfolio based on Treynor-Black weights further improves the performance of ESG portfolios. Overall, these results suggest there is a significant signal in ESG rating scores that can be used for portfolio construction despite their noisy nature.